How To Ensure Rental Income Within Your Corporation is Active Business Income
How To Ensure Rental Income Within Your Corporation is Active Business Income May 5, 2023 Tax Question: How do you ensure your rental income within
May 5, 2023
Tax Question:
When should you self-assess for Provincial Sales Tax (PST) and why?
Facts:
Normally whenever a British Columbian Corporation purchases goods, they have to pay PST on the goods or services that are used for consumption. However, there are occasions when goods and services are brought into British Columbia from other provinces or outside of Canada. In these cases, the PST is often not charged because the supplier is unaware of British Columbia’s sales tax regime and/or has no reason to charge PST. As a result, British Columbian corporations may be required to self-assess the PST.
PST applies to the taxable goods that you purchase or lease for your business. The main reason why self-assessment is required is to prevent taxpayers (who are purchasing goods for consumption) from avoiding paying PST on taxable purchases by acquiring these goods and services outside of British Columbia. For example, a corporation purchases an office computer from a store in Washington State. It is likely that no PST has been paid on that computer because the store is not subject to BC tax laws, and consequently the corporation has purchased the computer for potentially 7% less than if they purchased the same computer in British Columbia. The amount of PST you have to assess will be calculated on the total landed cost. This will include the purchase price, delivery costs such as freight and shipping, customs, duties and federal excise taxes (but not the Goods & Services Tax (GST) all converted into Canadian dollars. The PST rate of 7% has returned to British Columbia as of April 1, 2013. Some goods vary in the PST rate charged such as passenger vehicles purchased for $55,000 or more. Unlike GST, there is no Input Tax Credits (ITC) available to offset the PST collected and so self-assessment will have a cash impact. Furthermore, a failure to self-assess PST may result in penalties and interest.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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